skip to content

Faculty of Economics

Journal Cover

Mehling, M. A. and Ritz, R.

From Theory to Practice: Determining Emissions in Traded Goods Under a Border Carbon Adjustment

Oxford Review of Economic Policy

Vol. 39 pp. 123-133 (2023)

Abstract: As part of its Green Deal, the European Union has advanced a ‘Carbon Border Adjustment Mechanism’ (CBAM). Reflective of a trend towards greater use of coercive trade measures to advance environmental and other policy objectives, the CBAM would extend carbon pricing to imported goods with the aim of limiting carbon leakage. Theoretical enquiry into this type of policy approach—known as border carbon adjustments (BCAs)—suggests economic and environmental benefits, but typically discounts the role of legal and practical constraints on BCA design and implementation. In this paper, we show why the BCA design commonly featured in past research—basing the adjustment level on default carbon intensities—runs counter to the economic logic of carbon pricing by distorting the incentives for emissions abatement. Requiring producers to demonstrate their actual carbon intensity captures additional economic benefits of carbon pricing and improves the overall legal prospects of a BCA, but adds to its administrative complexity and creates risk of avoidance practices such as ‘resource shuffling’. What emerges is a more nuanced understanding of BCAs that highlights the challenges when transitioning from theory to practice.

Keywords: border carbon adjustment, CBAM, carbon pricing, European Green Deal, international law, international trade

JEL Codes: H23, K33, Q54

Author links: Robert Ritz  

Publisher's Link:

Papers and Publications

Recent Publications

Porzio, T., Rossi, F. and Santangelo, G. The Human Side of Structural Transformation American Economic Review [2022]

Bhattacharya, D., Dupas, P. and Kanaya, S. Demand and Welfare Analysis in Discrete Choice Models with Social Interactions Review of Economic Studies [2023]

Ajzenman, N., Cavalcanti, T. and Da Mata, D More than Words: Leaders' Speech and Risky Behavior During a Pandemic American Economic Journal: Economic Policy [2023]

Gallo, E. and Yan, C. Efficiency and Equilibrium in Network Games: An Experiment Review of Economics and Statistics [2023]